Emergency loan pool proposed for school construction needs

by Kimberly Beltran

(Calif.) School construction officials are set this afternoon to consider a new loan program for districts in dire need of building capital once provided through state bond funds which are no longer available.

The plan before the State Allocation Board calls for the loan proceeds to be repaid with monies from a new school construction bond headed for the November ballot. If the measure fails, districts could increase the school impact fees they are allowed to collect from housing developers whose projects bring in more students.

Regulations currently governing a program for districts that meet ‘extreme financial hardship’ would be expanded, creating a new loan program to cover the state and/or district share of new construction projects, according to a staff report prepared for the SAB, which approves expenditures for K-12 building projects under the state’s School Facility Program.

Funding for the loans would require a new budget allocation or could come through the state’s Pooled Money Investment Account.

The PMIA, according to the State Treasurer’s website, is a pot of taxpayer dollars invested “to manage the State’s cash flow and strengthen the financial security of local governmental entities.” At the end of April, the site reports, the PMIA portfolio totaled approximately $67.6 billion.

The proposal, submitted last month by advocates from within the school construction community – including state building trades – is a stop-gap measure aimed at providing state support for struggling districts until another facilities bond is approved by voters. It will also help to stave off a near doubling of developer fees – something many fear could stall a housing industry comeback.

“What we want is to discuss a solution to a real problem and that is a funding shortfall for districts that through no fault of their own are not able to move forward with projects or for districts that have to borrow from future projects to be able to take care of projects today where they were anticipating state funding but because of the limits that are imposed by law…and the other mechanisms that really constrain school districts that are trying to deal with the growth issues,” school housing advocate Tom Duffy told SAB members last month.

At that same meeting, the board was besieged by a large contingent of leaders, staff and residents from two severely overcrowded Bay Area districts to take action to help them. One of those districts, Dublin Unified, is in a period of extreme growth, has built new schools using funds yet to be repaid by the state and still needs more classrooms to meet the demand.

The proposed loan program would help Dublin continue investing in facilities until another funding source became available, advocates said.

“Plain and simple, we need more classrooms, and right now, we are not sure how we're going to be able to afford it,” said Dublin school board president Dan Cunningham. “We wait for tens of millions in funds due for schools we have already built and we face a prospect of having to build additional schools without state funds.

“The issue is undermining our educational mission, the confidence of our community, and frankly, our ability to pass future bonds,” he noted. “It is doing damage that we believe is completely unnecessary.”

The hardship assistance program that would be restructured to include the new construction loans for extreme hardship cases is distinct from an emergency repair loan program for health and safety improvements for which Gov. Jerry Brown put aside $100 million in his 2016-17 budget. Legislators on both the Senate and Assembly Education Committees have rejected that proposal as being redundant since the state has an emergency repair program, according to the Legislative Analyst’s Office.

As was discussed last month, law makers sitting on the SAB may choose to push for a budget allocation for the new loan program.

The SAB discussion comes as builders and school groups have already qualified a $9 billion facilities bond for the November ballot – debt that Brown has warned against taking on. With state support for school construction nearly depleted, expectations are that the entire cost of new schools could fall on local developers.

Many districts have recently voted to increase the per-square-foot fees they are allowed to charge home builders under current conditions. If the SAB were to initiate the new loan program, it would in effect be signaling that School Facility Program funds are depleted – a move that would trigger a jump to the next tier of developer fees, known as Level III. At this stage, housing builders could be on the hook for as much as 100 percent of the costs of new school construction.